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Impending 'patent cliff' for biologics likely to draw scrutiny from competition authorities, says expert

Out-Law Analysis | 23 Nov 2015 | 9:42 am | 7 min. read

FOCUS: The impending expiry of patents awarded to the first wave of so-called biologics could again bring competition law issues to the fore in the life sciences sector in the coming months.

Biologics are medicines that are derived from living material and can include vaccines, blood products or gene therapies. Big pharmaceutical companies that have developed biologics to treat disease face losing their dominant position in the market as rival businesses work to develop near-copycat alternatives. These biosimilars are designed to compete with originators' products.

Pharma giants can take legitimate steps to preserve their business but some activities they might consider entering into which are permitted under intellectual property law can fall foul of competition rules.

Regulators have already intervened several times in the pharmaceuticals market to sanction companies for breaching competition laws, and are likely to keenly scrutinise product lifecycle management strategies as the patent cliff for biologics nears.

The rise of biologics

According to figures published by the IMS Institute for Healthcare Informatics in October 2014, biologics account for 27% of the total value of pharmaceutical sales in Europe. Sales of biologics are growing at an annual rate of 5.5%, well above the 1.9% sales growth recorded for the entire pharmaceuticals market.

The rise of biologics is prompting envious glances from other drug manufacturers. Some have turned to developing biosimilars, which are medicines intended to have the same mechanism of action and to be used to treat the same diseases as an original biologic they are based on. However, bringing biosimilars to market is more challenging that it is with conventional generic drugs. That is because increased regulatory requirements apply, linked to the fact that biosimilars are not an exact copy of originator products.

In the latest sign of the growth of biosimilars in Europe, the Committee for Medicinal Products for Human Use at the European Medicines Agency (EMA) on Friday recommended that marketing authorisation be granted to Samsung Bioepis UK for its biosimilar drug Benepali (2-page / 79KB PDF).

Benepali has been developed to help treat rheumatoid arthritis, amongst other things, and is based on existing biologic product Enbrel which generated $9 billion in global sales for its manufacturer Amgen last year. In 2011, Amgen obtained a new patent for its Enbrel product prior to the expiry of an existing patent on the product, making it harder for biosimilars to be produced.

Patenting strategies are crucial to the success of a drug. There is no doubt that the pursuit of genuine innovation should be rewarded. However, a more difficult question arises where a dominant company attempts to extend its exclusivity and whether there are times when this amounts to an abuse of dominance. Competition authorities are readily intervening in these cases and challenging long-standing practices across the pharmaceutical sector.

The seminal AstraZeneca case

In a landmark ruling in 2005, the European Commission fined AstraZeneca €60 million for misusing the patent system and procedures for marketing drugs in order to block or delay the market entry of generic competitors to its ulcer drug Losec.

Companies which occupy a dominant position are under a special responsibility not to allow their conduct to impair genuine undistorted competition. Failure to observe that special responsibility will amount to an abuse of a dominant position under the Treaty on the Functioning of the EU.

The Commission found that AstraZeneca had abused its dominant position in the market by selectively deregistering market authorisations for Losec capsules in Denmark, Norway and Sweden with the intent of blocking or delaying entry by generic firms and parallel traders. At the time, generic products could only be marketed, and parallel importers only obtain import licenses, in national markets if there was an existing reference market authorisation for the original corresponding product.

The Commission also determined that AstraZeneca had given misleading information to several national patent offices which helped it obtain additional protection for its Losec product through the granting of supplementary protection certificates.

The case was appealed to the European courts. In 2012 the Court of Justice of the EU (CJEU) confirmed that AstraZeneca had acted in breach of EU competition rules and imposed a €52.5m penalty on the company.

Other examples of companies getting their patent strategies wrong

The AstraZeneca case showed the potential for the competition law regime to apply to any situation which involves the interaction of a dominant company with a regulatory procedure. It places a quasi good faith obligation on those companies to use such processes and procedures in a way which does not distort competition.

However, there have been other examples of pharmaceutical companies falling foul of the competition regime because of their misuse of the patent framework.

In 2012, Italy's competition authority (AGCM) fined Pfizer more than €10m for abusing a dominant market position. Pfizer had taken a number of steps to extend protections to its patented anti-glaucoma drug and to delay the entry into the market of rival generic products, including engaging in litigation against the generics and in efforts to prevent regulators granting marketing authorisations to those companies.

On appeal, Italian's highest court for competition law matters, the Consiglio di Stato, stated that a dominant company cannot engage in conduct that, although legitimate under patent laws, merely results in anticompetitive behaviour.

Examples of potential misuse of regulatory procedure or abuse of rights in the field of biologics could include the filing multiple patents to cover a single product where it creates a patent thicket that undermines rivals' attempts to compete in the market.

In a 2014, the European Commission fined Servier for abusing its dominant position in relation to the drug perindopril. Among the issues relevant to the case was the fact Servier had filed a patent cluster as a tactic to delay generic entry into the market.

Product hopping is another strategy that can fall foul of competition rules in the pharma market. Product hopping typically involves moderate reformulations being made to existing medicines, where the manufacturer launches the new version of a drug, usually patent protected, to replace the older drug, which may have reached patent expiry. The tactic can prevent or delay generic entry into the market and force patients to switch to the newer medicine.

In the case of biologics, reformulations of original drugs are called biobetters. Biobetters seek superiority in one or various aspects of their clinical profile. While biobetters will target the same protein, they will be structurally and/or functionally modified which can lead to improvements on original biologic products.

Whilst biobetters are developed with the intention to deliver some improvement over an originator established product, their entry and timing clearly has implications for competition as they could alleviate the loss in sales to a biosimilar if patients are switched to the biobetter before biosimilar entry takes place.

In a case that shows that regulators might look dimly on such activity, Reckitt Beckiser agreed to pay a £10.2m penalty in 2010 in a settlement deal struck with then UK competition authority the Office of Fair Trading over product hopping activity which helped it to monopolise the market for the NHS supply of heartburn medicines, despite patent protection on its original product expiring.

Branded drugs manufactures will also often take steps to defend the alleged superiority of their products around the time of patent expiry. However, in some cases the denigration of alternative products has led to regulatory action.

The French competition authority has been particularly active in this area. It fined both Sanofi-Aventis (€40.6million) and Schering-Plough (€15.3million) for such conduct, as well as objecting to Arrow Génériques’ alleged “systematic criticism of its generic rivals". The alleged behaviour involved disparaging rival products during sales pitches, as well as granting unjustified discounts. Schering-Plough was held to have developed a plan to raise a number of health-related concerns about its rival’s product. This included questioning its bioequivalence and the safety of excipients used.

Anti-competitive agreements also frowned upon

EU competition laws also place a general ban on organisations putting in place agreements which may affect EU trade where those agreements "have as their object or effect the prevention, restriction or distortion of competition within the internal market".

There have been a number of cases in recent years in which the European Commission has scrutinised agreements pharmaceutical companies have reached with generics manufacturers which involve the generics being paid to delay their entry into markets.

In June 2013, the Commission fined Lundbeck €93.8m and fined several producers of generic medicines €52.2m in relation to anti-competitive agreements concerning Lundbeck’s blockbuster drug Citalopram. The Commission identified that the generic producers agreed with Lundbeck not to enter the market in return for substantial payments and other inducements from Lundbeck amounting to tens of millions of euros.

In a case that shows how the rules on anti-competitive agreements can apply in the context of biologics, the AGCM in Italy in 2014 fined Novartis €92m and Roche €90.6m after determining that the companies had colluded in a bid to promote sales in one eye disease drug, Lucentis, from which they would both benefit, by raising and spreading concerns with regard to the safety of a cheaper alternative, Avastin.

The AGCM’s decision is undoubtedly controversial, but its implications for biologics are clear given the potential for safety-related matters to be raised in the context of biosimilars.

Competition authorities have proven that they are willing and able to identify anti-competitive conduct, even where it may require technical and scientific assessment and involves sophisticated biologics and the regulatory framework within which they sit.

The importance of keeping competition law in mind

Any successful lifecycle management strategy, be it for originator biologics, biosimilars or biobetters, will recognise that competition law is complementary to intellectual property law and can play a pivotal role in the success or failure of a product.

Attempting to manage a product’s lifecycle without also considering the competition law implications may lead to unnecessary complications, fines, litigation, reputational damage and/or unnecessary delayed market entry.

Natasha Pearman is an expert in competition law at Pinsent Masons, the law firm behind Out-Law.com. This article is based on a white paper developed by Pinsent Masons which considers the competition law issues in relation to originator biologics, biosimilars and biobetters.